Tesla drives into storage with home-to-utility-scale battery offering

Electric vehicle pioneer Tesla planted itself firmly in the emerging market for renewable energy storage with the launch of a suite of battery systems spanning residential and utility-scale applications.

In a heavily-trailed announcement, Tesla launched a new business line – Tesla Energy – and entered the lithium-ion battery storage sector with a range of commercial and technology partners.

One of those partners is SolarCity, the largest US installer of both residential and commercial PV systems, which will begin offering the batteries with the solar systems it builds for homeowners, businesses and remote communities.

Among Tesla’s new offering is the Powerwall Home Battery, designed for domestic applications including storage of surplus solar generation.

The 10kWh Powerwall has a wholesale price to installers of $3,500 and will integrate with inverters from Israel-based SolarEdge, which recently launched an IPO.

But consumers will also need to pay for the inverter and installation, which could nearly double the cost of an entry-level Powerwall system, according to Lux Research.

Deliveries of Powerwall, which also comes in a 7kW version, will begin this summer. The Powerwall kit is roughly the size of a suitcase.

Other rooftop solar companies will also begin offering Powerwall, including SolarCity rival Sunrun, acting through its distribution subsidiary AEE Solar.

SolarCity says the cost of a PV-and-battery system for a typical home will drop by 60% compared to a year ago, if Powerall batteries are used.

SolarCity expects to begin installing them for customers in October.

Elon Musk, the South African inventor and entrepreneur, is chairman and chief executive of Tesla, and also chairman of SolarCity. Musk’s first cousins, Lyndon and Peter Rive, are chief executive and chief technology officer at SolarCity, respectively.

Despite the intense interest in the Powerwall system, the biggest near-term commercial opportunities for Tesla Energy lie in the commercial- and utility-scale energy sectors, according to Ben Kallo, senior equity analyst at Baird.

Many of the most important US residential solar markets have net metering policies in place, meaning that homeowners with PV systems can effectively pump their excess solar energy back onto the grid for free.

“But over time, they’ll be able to reduce the cost” for residential systems, Kallo said, speaking yesterday at a solar conference in New York. “And even though with net metering [a battery system] might not make sense on the residential side, there will still be early adopters.”

While residential-scale storage is becoming more competitive, and Tesla's announcement is a big step in the right direction, battery technology still remains a decade behind PV, according to Minh Le, director of the US Energy Department's SunShot Initiative.

"The cost of residential-scale batteries is four times higher than what I'd like to see it in order to be really competitive," Le says.

But SolarCity CTO Peter Rive says over time batteries will become a cost-effective means of solving the two biggest problems for solar energy – intermittency and the lack of sun during the night.

“We expect costs to continue to decline as manufacturing scales, and over the next 5-10 years, these cost reductions will make it feasible to deploy a battery by default with all of our solar power systems,” Rive says.

Tesla’s "infinitely-scalable" utility-scale offering, meanwhile, is based on 100kWh battery blocks of 500kWh to more than 10MWh.

The company’s launch partners in the utility space include power group AES, Southern California Edison, and transmission and distribution specialist OnCor.

Tesla is also targeting corporate-scale storage with systems for on-site and backup power.

Anissa Dehamna, principal research analyst at Navigant Research, says she is not holding her breath for Tesla to transform the storage market.

"I think there are other companies that are already transforming it," she says, citing AES and NEC on the integration side and Sony, Panasonic, LG Chem, Samsung and Saft on manufacturing.​

Tesla shares were flat Friday morning on the news, while SolarCity shares were up 1.4%. SolarEdge shares were up more than 5%.

The launch of Tesla Energy attracted an unusually high level of interest given the track record of Tesla as an innovator in the electric vehicle market, in which it is the world’s best-known brand name.

Tesla founder Elon Musk claimed the shift marks the company’s transformation into an “energy innovation company” that can help plug the gaps between intermittent renewable generation and consumption.

The company is already building a lithium-ion battery 'giga-factory' in Nevada.

Tesla and SolarCity have already worked together on a limited basis, but the new business line will inevitably accelerate that process sharply.

The level of interest in Tesla Energy also reflects the huge expectations for the  storage sector.

However, analysts pointed out that Tesla Energy will be in competition with established heavyweights such as GE, Saft and NEC.